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Monday, September 19, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Sep 16, ‘11

S&P 500 Index Chart

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The technical indicators of the S&P 500 index chart were giving mixed signals last week, as the index consolidated within a bearish ‘flag’ pattern. I had expected some more consolidation before the down move resumed.

The index bounced off the lower edge of the ‘flag’ pattern on Mon. Sep 12 ‘11 and rallied past the 20 day EMA, but once again came up against strong resistance from the 50 day EMA. Even if the index can move above the 50 day EMA, it will come up against stronger resistances from the 200 day EMA and the upper edge of the ‘flag’ at 1250.

The technical indicators are showing bullish signs. Both the RSI and the slow stochastic are above their 50% levels. The MACD is negative, but rising above its signal line. Remember that the S&P 500 is in a bear market, so rallies can be used as selling opportunities.

The US economy is struggling to maintain growth. August retail sales was flat. CPI and industrial production rose very marginally. The Univ. of Michigan consumer sentiment index showed a slight improvement. Weekly rail traffic rose a bit. But weekly jobless claims increased to 428,000. The ECRI Weekly Leading Index (WLI) growth indicator dropped deeper into negative territory. Not much to cheer about.

FTSE 100 Index Chart

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The FTSE 100 index chart pattern looks like the poorer twin of the S&P 500 index chart. An almost identical consolidation within a bearish ‘flag’ pattern including the rally past the 20 day EMA, followed by a stumble at the 50 day EMA. At the time of writing this post, the index is down more than 100 points (2%).

The technical indicators are mildly bullish, which points to further consolidation within the ‘flag’ before the eventual break down. The slow stochastic and the RSI are rising above their 50% levels. The MACD is above its signal line, but in negative territory.

The Greek government has promised fresh austerity measures in an effort to stave off a debt default. The UK economy is not faring great either. Retail sales fell in August. Unemployment rose by 80,000 – the worst increase in two years. Inflation rose to 4.5% from 4.4% in July. Not very conducive for a stock market rally.

Bottomline: S&P 500 and FTSE 100 index charts are continuing their consolidation within bearish ‘flag’ patterns. Tests of the recent lows of 1100 on the S&P 500 and 5000 on the FTSE 100 are likely. Much lower levels are possible. Stay on the sidelines.

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